EquiLend Monthly Market Commentary October 2022

Mike Norwood

Nov 2022

Mike Norwood, Head of EquiLend Trading Solutions, gives his take on October’s trading data with the continued backdrop of global volatility from a range of sources.

Month on Month Increases as Securities Finance Markets Head into Q4

Recapping October 2022 market activity, we saw equity markets were strong in October, rebounding from September lows. Major indices gained on the back of strong earnings reports and expectations that the Federal Reserve may slow rate hikes following a widely anticipated 75bps boost in November. Short covering and considerably decreased leverage in the hedge fund community was also in play as reduced portfolio leverage across the Hedge Fund community drove a greater need to cover short positions.

Volatility Trends Remain High for Stock Market and Securities Lending Markets

The VIX, which estimates the volatility of markets based on S&P 500, did remain at elevated levels given central bankers hawkish stance and ongoing global political uncertainty which buoyed an otherwise muted amount of activity in the securities lending market. EquiLend’s NGT platform saw 2.47m trades executed v. $2.22T which represented a 2% reduction in average daily activity compared to September (121k v 124k) but an increase of 6% year over year. The broker-to-broker segment continued to grow across all platforms with NGT recording new daily average highs and corresponding strong activity seen on the ECS Loan Market with elevated levels driven by strong demand for high-rate GC and ETFs. 

Fixed Income Grows while Equities Trade Largely Static Month Over Month

Fixed income trades continued to be in focus with daily average execution increasing month over month in all global regions continuing the trend we saw across Q3 2022, with Fixed Income touching 32% growth in activity year over year. Anticipation of continued growth is predicted as Bonds make up part of Fixed Income’s categorisation and government and corporate bond yields are at five-year highs thanks to rising rates.

Canada was a highlight at +16% over September as rising interest rates put bond yields in focus. Equity volumes were relatively flat month to month in the lending market as all sectors rebounded from September equity market lows. Industrials and consumer discretionary remained the top in demand sectors with financials overtaking healthcare for the #3 spot as a combination of increasing interest rates and earnings drove prices higher. Price performance for the year has been hard going in all sectors and continued directional interest is likely driven by concerns that high inflation and expectations of a recession will weigh on future earnings.

Q4 Market Conditions Likely to Remain Volatile, Dictated by Key Economic Indicators

We continue to see above baseline activity across the board and it’s unlikely that markets will cool much while inflation remains out of control; a key driver in keeping the economy and labor markets hot. Economic indicators such as currency strength and interest rates will continue to dictate strategy for traders through year end and the remainder of the year will continue to be uncertain with much hinging on inflation, energy prices, and central bank guidance. 

Tune in for our November analysis next month and year end round up as we move through the quarter.

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EquiLend is a global financial technology firm offering trading, post-trade, market data, regulatory and clearing services for the securities finance, collateral and swaps industries. EquiLend has offices in New York, Toronto, London, Dublin, Hong Kong and Tokyo.